Good question. Perhaps @Hedgehog might be able to shed some light on this.
Somebody need a woodland creature who impersonates at tax attorney?
However, for-profit organizations are not tax exempt from moneys coming in and must therefore declare their profits for tax purposes. So when the boys go out selling popcorn, is that not a profit activity for the for-profit CO? And doesn't that income need to be reported? This may be why we have so few for-profit CO's.
I've never encountered this situation, so all I can do is provide some educated speculation.
I think the answer as to the profits is clear - you sell popcorn that is a gross receipt, you pay for the popcorn that is a cost of good sold, the difference between gross receipts and the cost of good sold is income. Same answer if you are the local grocery store selling popcorn out of your inventory or the local freight company selling Boy Scout popcorn.
From a technical perspective, I doubt most of the amounts paid for Scouting expenses could be properly deducted for tax purposes. Some expenses could be considered advertising or marketing such as painting "Troop 247 Sponsored by Bob's Shipping" on the side of the trailer (similar if they purchased uniforms with their name on it for a Little League team). The general test for a deduction is if it is "ordinary, necessary and reasonable." For example, It is hard to say that paying for a campout is an ordinary, necessary and reasonable expense incurred by a trucking company. The amounts spent on Scouting also wouldn't be charitable deductions because amounts paid on behalf of a specific person cannot be a charitable deduction.
Additionally, the Scouts selling popcorn could be considered employees and scout accounts could be considered compensation.
However, my sense is that most auditors would nonetheless allow the popcorn "profits" to be reduced by any scout related expenses - if they even bothered to look at it. Probably would just tell them to fix the problem by forming a 501(c )(3) entity and running it thorugh that.
And it gets even messier because of these "sales" even if for non-profits should be collected sales tax in many cases.
Correct. Only certain sales by non-profit entities are exempt from sales tax (e.g. sales by a non-profit hospital's gift shop are typically taxable). However, most states do not tax food, so popcorn wouldn't be taxable anyway.
I'm betting a unit chartered by a for-profit business still has a bank account with a non-profit EIN.
Although it is easy to get an EIN, it is much more difficult to get federal 501(c )(3) tax exempt treatment. To get the 501(c )(3) designation you need to provide the appropriate formation and governance documents.
Edited by Hedgehog, 18 January 2017 - 10:11 PM.